- Pound (GBP) is rising, adding to last week’s gains
- UK business activity grows at a slower pace
- Euro (EUR) falls after weak data
- PMI data points to recession risks
The Pound Euro (GBP/EUR) exchange rate is rising, adding to gains from the previous week. The pair rose 0.73% in the previous week, settling on Friday at €1.1934 and trading in a range between €1.1826 and €1.1938. At 17:00 GBP/EUR trades +0.51% at €1.1992.
The pound is rising after UK business activity data (PMI) was weaker than expected but supported the view that the UK was heading for a soft landing.
The composite PMI, which is considered a good gauge for business activity, fell by more than expected to 52.9 in September, down from 53.8 in August.
Delving deeper into the figures, the service sector PMI fell to 52.8 in September, down from 53.7, and the manufacturing PMI dropped to 51.5 from 52.5. While the data was weaker than expected, it supports the view that the UK economy grew by a steady 0.3% in the third quarter.
Meanwhile, service sector inflation eased to its lowest level since February 2021, which will ease price pressures. This will be a relief to the BoE as they consider when to cut interest rates again. Last week, the Bank of England left interest rates unchanged at 5%.
The euro is falling after PMI data raised concerns of a recession in the region.
The composite PMI fell to 48.9, meaning that business activity contracted this month.
With the Olympics in the rearview mirror, the service sector is growing at a slower pace of 50.5, and the manufacturing sector contracted at a faster pace of 44.8 from 45.8 in August.
Meanwhile, German manufacturing PMI dropped to 40.3 in September, below the 42.4 expected, with German companies racing to slash jobs as the hope of a recovery evaporates. The data from the eurozone region heightens the risk of the economy facing a hard landing. The data supports the view that the ECB may need to cut interest rates at a faster pace in order to support the economy, pulling EUR lower.
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